FIN 101 (Introduction to Finance) TEST

Why does money have a time value?

• Inflation affects its value

• Money can earn interest over time

• Future cash flows are uncertain

• All of the above

Which of the following statements is true about the time value of money?

• ₦1,000 today is worth less than ₦1,000 tomorrow

• ₦1,000 today is worth more than ₦1,000 tomorrow

• The value of money remains constant over time

• Time value of money only applies to loans

The primary principle of time value of money is:

• Delaying payments increases their worth

• Money grows due to the ability to invest and earn returns

• The value of money depends solely on inflation

• Future cash flows are not discounted

Which factor does NOT influence the time value of money?

• Interest rate

• Time period

• Currency type

• Inflation rate

What is the future value of ₦50,000 invested at 10% annual interest for 3 years?

• ₦65,000

• ₦66,550

• ₦73,205

• ₦75,000

The present value of ₦100,000 to be received in 4 years at a discount rate of 8% is closest to:

• ₦80,000

• ₦73,502

• ₦68,000

• ₦75,040

What does the term "discounting" refer to in present value calculations?

• Adding interest to future cash flows

• Dividing future value by a growth factor

• Converting future cash flows to their present worth

• Reducing the principal amount of a loan

Why is present value used in finance?

• To calculate the worth of future cash flows today

• To calculate how much money will be worth in the future

• To find the total cash inflows over time

• To compare different currencies

If the discount rate is 12%, what is the present value of ₦200,000 to be received in 3 years?

• ₦144,000

• ₦142,000

• ₦157,030

• ₦178,000

The present value of ₦300,000 to be received in 5 years at 6% annual discount rate is closest to:

• ₦224,000

• ₦225,000

• ₦224,504

• ₦250,000